Expectations for the next nonfarm payrolls report are nothing special – the median forecast of economists by MNI puts the headline at +190,000 and private payrolls at +185,000, just above average for the last three months – but there is a good deal more uncertainty than usual for the January report.
There are three sources of potential volatility:
1) The weather: The month of January was book-ended by two “polar vortex” events, submitting most of the east coast to below-freezing temperatures, which tends to slow down construction jobs and most consumer activity. Economist George Mokrzan at Huntington told MNI that this would be “in line with the temporary impact in other recent economic indicators such as manufacturing and vehicle sales.”
2) Seasonality: Though seasonal adjustments are meant to offset the recurring year-end drop-off in hiring, it is difficult to accurately predict from year to year. A research note from BNP Paribas notes that January payrolls have been lower than economists’ forecast on average by 22,000 for the last five years, and by 41,000 over the last 10 years.
3) Potential “bounce back”: Any month when hiring is constricted by unusual weather is usually followed by a “bounce back” the following month, but January only continued the trend started in December, so the effects of this could be limited. The sector most directly hit by weather is usually construction, which did post a large decline in the December report and could remain depressed until the weather turns. A research note from RBS adds that the professional business services and health care sectors were also below trend in December, and could see some bounce back.
Nonfarm payrolls in the December report rose a paltry 74,000, though it was widely written off by the majority of economists as a blip in the radar, driven mostly by unusually cold weather. The Federal Reserve largely agreed with this assessment, as the Federal Open Market Committee continued to reduce its monthly asset purchases in line with a strengthening job market at the January meeting.
The January ADP employment report, released Wednesday morning, also showed “no obvious sign that weather impacted the data,” according to a Credit Suisse research note. The ADP report showed an added 175,000 jobs in January.
But both the Institute for Supply Management’s January manufacturing survey and January auto sales were lackluster, with the former dropping 5.2 points to its lowest level in eight months. The story here was assumed by most economists to be weather-related, which both Ford and General Motors blamed for the month’s sales.
Contrary to this belief, Julia Coronado, economist at BNP Paribas, told that the ISM index “was overdue for a correction … . It was running stronger than any other indicator for the manufacturing sector, and the underlying picture is more steady and moderate than the gyrations in the ISM would suggest.”
According to Coronado, the more likely scenario is that, weather-impacts aside, the underlying trend for the jobs market will hold steady. A research note from Bank of America adds that “the fundamentals are supportive of job growth.”
The main takeaway from the January jobs report, once you read through the noise, could simply be more of the same – solid, but not explosive growth, in keeping with the trend for most of the past year.
“Given what we saw in Q4, which was a pretty decent GDP performance, we shouldn’t see the labor market slowing sharply,” Coronado added. “There’s always a lot of volatility in these numbers, and more than likely we’ll see a number Friday that should be steady.”
It should also be noted that the revisions to establishment survey data will be released with the January report, so the December data, along with the rest of the year, could look drastically different from what was previously reported.
The January nonfarm payrolls report will be released Friday at 8:30 a.m. ET, and will include annual benchmark revisions for 2013.